MANAGING CHANNEL MEMBER BEHAVIOUR-

CHANNEL MEMBER BEHAVIOUR

The major part of the channel management function involves the management of the channel constituents in directing their behavior towards the effective and efficient achievement of the overall objectives of the channel

It is well acknowledged among marketing theorists that marketing channels are not merely economic entities but are also social systems characterized by the dual elements of co-operation and conflict

CHANNEL RELATIONSHIPS

Relationships are formed both at the organizational level and between individuals who interact on behalf of the organization

These relationships are defined in terms of inter-related concepts such as-

Perceptions of organizational Power, Dependence, Control, Trust ,Commitment, cooperation

CHANNEL RELATIONS GOING WRONG

When one Party perceives the behavior of another party in the social system to be impeding the attainment of its goals, a state of conflict exists.

CAUSES OF CHANNEL CONFLICT

-Role Incongruities.

-Resource Securities.

-Perceptual Differences.

-Expectational Differences.

-Decision Damping Disagreements.

-Goal Incompatibilities Communicational Difficulties.

EXAMPLE=The mass boycott of FMCG companies by the distributors and retailers of kerala in the

late 1990s

= A switchgear company wanted to implement

enterprise resources planning systems at itsdealer

level but was met with lot of resistance since the

dealers did not want to share some of theirbusiness information with the company

CHANNEL RELATIONSHIPS

1)transaction specific relationship Both the parties do not have any commitment to

another Generally relationships limited to just one transaction

can be included in this category E.G-A textile merchant from Tamil Nadu traveling

all the way to Surat to buy textile in bulk to be transported to Tamil Nadu to be sold to the customers

Both the parties aim to maximize their individual profits since there is no expectation of a long term relationship which could bring a sustained profit in the long run

No concept of a channel principal or a channel leader

CHANNEL RELATIONSHIPS

2)relationship characterized by relational exchange

Level of commitment towards the relationship is very high and the expectation for a long term relationship is very high

There should also be a perfect convergence of individual and common goals

If the textile from a particular supplier from Surat has become very popular in the market in which the merchant sells, the merchant would want to do more business with this particular supplier.

The supplier would also like to do business with this merchant to increase sales of his products in tamil-nadu as there is no other merchant

Both the parties are interlocked by a common goal

CHANNEL CONTROL

Loosely controlled channel system cannot optimize the deployment of resources

Channel control can be done by- Imposing specific penalty Personal intervention In most pharmaceutical companies, there are

specific dates after which the C&F agents appointed by the company do not accept any order from the stockiest every month (the controlling member must possess some authority over the members whose actions are controlled

“Zone of indifference”

According to Barnard, there exists a zone of indifference in each individual within which orders are acceptable without conscious questioning of their authority

The zone of indifference will be wider or narrower depending upon the degree to which the inducements exceed the burdens and sacrifices, which determine the individual’s adhesion to the organization

If the perceived inducements of adherence are very narrow or not significant ,the zone of indifference will also be narrow

The authority is proportional to the ability to impart inducements

CHANNEL POWER

The capacity of one channel member to get another channel member to do something that he otherwise would not have done.

If the buyer is a large organization with a large purchase budget and most of the vendors are small organization, the buyer will be in an advantageous position to bargain for greater discounts from the small vendors

CHANNEL POWER

Bases of Power for Channel Control 1)reward 2)coercive 3)legitimate 4)referent 5)expert

CHANNEL POSITIONING

The channel position is defined as the reputation a manufacturer acquires among distributors for furnishing products, services ,financial returns, programmes and systems that are in some way superior to those offered by competing manufacturers

The channel position leads to 2 types of effects- 1)it increases the pay-off function to a level that greater

control will be perceived to be more beneficial for the entire system and

2)it reduces the tolerance function by diminishing the attractiveness of the alternate options for the channel members

Components of channel offering

1)the channel core elements

2)the capability building programs

3)the incentive programs

CORE ELEMENTS

1)the financial returns that the relationship will provide to the channel members

2)the quality of the product

3)the price at which it is being offered to the market

4)the delivery reliability

5)the reputation of the brand

CAPABILITY BUILDING PROGRAMMES

• HLL conducts ‘operation Dronacharya’

• Other methods for capability building are-

-Providing marketing research data-Conducting joint promotional campaigns-Imparting technical knowledge to fact customer queries-If the manufacturer follows selective distribution, then the

channel members will be more motivated to align with the channel principal

Incentive programs

• Are more tactical in nature• Incentive programs like foreign trips

for the executives are popular• Another method is grading of

channel members by companies based on the sales achieved and then giving differential discount on the basis of the category to which a particular channel member falls

Channel influence strategies-(Frazier and

Summers-(1984) 1)indirect influence strategies 2)direct unmediated strategies 3)reward and punishment strategies 4)direct unweighted strategy 5)direct mediated strategies

Indirect influence strategies

Involves-

Information exchange

Information control

Modeling

Information exchange

The attempt is to indirectly use information to influence a channel member

If a channel member is required to stock more, the channel principal just gives information on the stock-out situation that can result from inadequate stock as well as the stock out costs

The need for actually increasing the stock position is not however indicated

Information control

-To increase the stock position, the channel principal sends periodic reports to the channel members that indicate an

increase in sales for the product in other markets or the impending

increase in demand due to some market factor.

-The flow of information is controlled by the channel member in such a

way that the channel member ends up

taking the required action without any direct influence attempt

modeling

• The channel principal, along with the channel members, tries to model an impending event with a greater sharing of information so that the channel member is in the end convinced of following a particular course of action

Direct un-mediated strategies

Recommendation

Warning

Positive normative

Negative normative

Reward and punishment strategies

Economic reward

Non-economic reward

Economic punishment

Non-economic punishment

Here rewards and punishments are directly given to channel members

Direct unweighted strategy

Direct request

This strategy involves making a direct request to the channel member where the principal mainly communicates desires or wishes concerning the channel member’s acceptance of the channel programme

Direct mediated strategies

Personal plea

Promise

Threat

Legalistic reference

Here specific action is requested; consequences of acceptance or rejection are stressed and are based on the mediation of the channel principal

Direct unmediated strategies

The channel member is informed about the consequences of complying or not complying with the decision based on the reaction from the external market environment

Recommendation strategy

If the channel member is expected to increase the number of sales people devoted to the product line, the channel member is asked to increase the number since it will generate more orders

Positive and negative normative strategy

The channel member is impressed upon that complying with a particular decision is a norm in the channel

The line of argument in the case of sales person appointment will be like ‘for all the other dealers have a dedicated sales person for this product only in this dealership no one is there

Rewards and punishment strategies

Rewards and punishments can be both economic as well as non-economic

A special discount for supporting new products, usually given by pharmaceutical companies, I s an example of the economic reward strategy while an appreciation letter from the president of the channel principal is an example of non-economic rewards

Rewards and punishment strategies

For a reward and punishment strategy to be effective, the channel members should adequately value it

Excessive use of economic reward could actually lead to the gradual erosion of its utility

Rewards and punishment strategies

For a reward and punishment strategy to be effective, the channel members should adequately value it

Excessive use of economic reward could actually lead to the gradual erosion of its utility

Request/recommendation strategy

Request strategy involves directly asking the channel member as a blatant encroachment of their freedom to take decisions

In case of recommendation strategy, while the requisite decision to be taken by the channel member is specified, it is not conveyed as if the channel principal would like the channel member to abide by it

A request strategy can be very effective if the channel principal is known by the channel members to indulge in reward strategy often

Exercising influence strategies

Frazier and sheth(1985)have designed six strategies on 2 dimensions

The first dimension is the behavioral dimension-positive and negative

The second dimension is the attitude dimension -1)positive 2)negative 3)neutral

Strategy-1-reinforcement process/behavioral

reinforcement

When behavior towards the channel program is positive and

Attitude towards the channel program is positive

Strategy-2-moderate rationalization

When behavior towards the channel program is positive

Attitude towards the channel program is neutral

Strategy-3-radical rationalization

Behavior towards the program is positive and

Attitude towards the channel program is negative

Strategy-4-inducement process

Behavior towards the channel program is negative

Attitude towards the channel program is positive

Strategy-5-moderate confrontation

Behavior towards the channel program is negative and

Attitude towards the channel program is neutral

Strategy-6-radical confrontation

Behavior towards the channel program is negative and

Attitude towards the channel program is negative

Influence objectives and appropriate strategies

1)behavioural reinforcement-non-economic reward, positive/normative

2)moderate rationalization –recommendation, modeling

3)radical rationalization-information exchange, modeling, recommendation, warning

4)inducement process-non-economic reward, positive/normative, request

5)moderate confrontation-positive/normative, request, negative/normative, promise

6)radical confrontation –warning, personal plea, promise, legalistic reference, non-economic punishment

Channel conflict as a process-4 stages

• 1)attitudinal causes of conflict• 2)structural causes of conflict• 3)felt conflict• 4)manifest conflict

Attitudinal causes of conflict

• Arise because of disagreements about-

• Channel roles• Expectations• Perceptions• Channel communications

Conflict management methods

Conflicts are normally resolved in 2 stages-

1)at the initial stage before the conflict degenerates into a felt or manifest conflict or failing which

2)the conflicts can be resolved after their manifestations

Conflict resolution mechanisms

1)institutional mechanism that focus on structural changes such as-

A) joint membership in trade organizations.

B) executive exchanges

C) co-optation,

D) distributor councils, and development of super ordinate goals

Conflict resolution mechanisms

2)interpersonal and third party mechanism, such as

arbitration and

mediation

Negotiations as a mechanism for resolving

conflictNegotiation is a process where the parties to

the dispute set down mutual rules of engagement and work within these rules to achieve competitive advantage over the other parties

Negotiation cannot take place with-out the two parties agreeing to negotiate

Economic interests normally predominate negotiations

Can be very formal with a detailed agenda and well laid down code of conduct

Negotiations as a mechanism for resolving

conflict

They can also be quite informal with the two parties talking to each other very informally without any particular agenda

It is often argued that ,negotiation strategies cannot be predicted and come naturally ,it is always possible to identify patterns and explain different types of strategies

Negotiation strategies

Based on 1)concern for own interests and 2)concern for the other parties’ interest

1)competing or aggressive

2)collaborative or problem solving

3)compromising

4)avoiding

5)accomodating

APPLE E.G.

Apple Computer, Inc. (Apple) was the leader in the personal computer (PC) market until IBM PC and its clones gained popularity.

Apple's market share slipped in spite of the popularity of its Macintosh (Mac) range of computers, which were sold through authorized resellers and large retailers.

To regain its market share, Apple started selling online (1997) and through company-owned retail stores (2001). The authorized resellers alleged that Apple showed undue preference to its stores during the shipment of its products.

They accused Apple of following unfair practices and channel strategies aimed at eliminating them. The case describes Apple's approach to retailing and puts forth the arguments of the resellers and details of their lawsuits.

APPLE E.G.

Issues:

• Hybrid channel system, channel functions, and channel integration.

• Exercise of power by a company (channel leader) over the channel members.

• Channel conflict and resolution.

THANKYOU

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